Blockchain Startups In Israel Have Tripled: Why Israel Can Become A Leading Blockchain Nation

Israel is known as the World’s Startup Nation, so it shouldn’t come as a surprise that the number of blockchain startups in Israel has tripled since the beginning of this year. According to new findings from the Israeli Blockchain Association, there are now more than 200 blockchain startups based in Israel, making the country positioned to become a leading blockchain nation.

“Israel has a good chance to strengthen its Startup Nation brand, as well as to become a Blockchain Nation. This growth is happening thanks to effective regulation and close cooperation of many blockchain startups with educational and academic research organizations,” said Gadi Isaev, managing partner of the Israeli Blockchain Association.

According to the Israeli Blockchain Association, most Israeli blockchain startups are concentrated in the fintech and protocols/core infrastructure sectors. A large increase was seen in the security sector, which today accounts for 23 startups. It was also noted that since the beginning of the year only 20 blockchain startups have ceased operations.

The Israeli Blockchain Association's most complete Israeli Blockchain Startup map that covers more than 200 startups operating in the blockchain industry.

Israeli Blockchain Association

Why The Israeli Blockchain Sector Is Booming

The Israeli blockchain industry is currently experiencing both a boost and a transformation. On the one hand, we see unprecedented growth among blockchain startups, but on the other hand, many of them are skipping ICOs in favor of equity financing. Today there are fewer startup founders coming out of morally questionable markets, such as Forex, binary trading, and gambling. Instead, more institutional players are starting to enter the market. Thus, the market is going through a self-purification, said Roman Gold, founding partner of the Israeli Blockchain Association."

While Initial Coin Offerings (ICOs) were a popular form of “crowdfunding” blockchain startups in 2017, research from Satis Group’s revealed that approximately 80% of ICOs last year were identified as scams. Moreover, new data from Fortune Jack has found that the top ten high-profile ICO scams have swindled $687.4M from unsuspecting investors.

As a result of the uncertainty brought about by ICOs, many blockchain startups in Israel have turned to equity financing.

We have been through an extremely exuberant phase of ICO funding, which has slowed dramatically. Crypto companies, whether pre or post ICO, are resorting into equity capital raises at more reasonable terms. As the industry is maturing at a rapid pace, I see companies raising equity while also defining token economics, governance, regulation forming and a proactive ecosystem taking steps to create a more sustainable growth trajectory," said Mor Asia, cofounder at iCapital.

Israel’s regulators have also been keeping pace with the evolving blockchain and cryptocurrency landscape. According to Alex Mashinsky, pioneer of Voice over Internet Protocol (VOIP) and CEO of Celsius Network, this is due to Israel being the world’s startup nation. As a result, regulators are required to ensure growth.

Regulations in Israel have come about because the government there is very open and sensitive to the tech community. Since there are so many startups in Israel, the government is forced to make sure growth isn’t stifled by not passing regulations. Israel is also one of the nations that understands the tremendous amount of capital flowing into this industry. The regulators there have to make sure they are supporting it. Israel has already passed specific laws that have enabled trading and the taxation of cryptocurrencies."

In January, the Israel Tax Authority issued a circular on the taxation of digital tokens. And in March, the Israel Securities Authority released its highly detailed “Interim Report on the Regulation of Decentralized Cryptocurrencies.” Currently the next wave of legislation is expected to define virtual currencies as “financial assets,” while mandating licensing for related services.

It's true that Israel has transformed into a blockchain nation with over 200 tech startups in the field, but that alone wasn't surprising given Israel's track record with emerging industries. What's more interesting is Israel's official position on cryptocurrency and the associated regulation and taxation. Israel is working to become a leading jurisdiction globally, not only by providing the adequate frameworks for the current use cases, but considering future implementations in the field," Yael Tamar, founder of Top of Blockchain and CCO at VeganNation, told me.

Just last week, the Israeli Blockchain Forum hosted a meetup with the Israeli Tax Authority (ITA). In attendance was Roland Am-Shalem, senior deputy director general at the Authority. According to Igal Nevo, CEO of the Israeli Blockchain Forum,

Roland declared he believes in the Blockchain industry and confirmed that ITA will do it’s best to establish a clear set of rules for the industry to flourish. Roland suggested the industry will work with ITA to point the problems and possible solutions through the Forum or individually. Roland also said he believes that ITA work in the Blockchain field will influence other authorities to regulate and clarify the field in the near future.

Regulations Bring More Innovation: What This Means For Israel

Due to advancing regulations, faster adoption of blockchain technology can be seen throughout the Israeli startup ecosystem.

Moreover, the new regulations being implemented in Israel will facilitate the interaction between the crypto sector and institutional investment and banking services.

Recently, the Israeli Supreme Court decided in favor of crypto exchanges, which ruled that banks and other financial institutions must not restrict crypto companies’ access to banking services based on speculative factors such as assumptions of risk. While the new rules may be controversial in some cases, such as the reporting requirements for financial service providers, the move is seen as a major step forward for cryptocurrency regulations and could position Israel as a pioneering force embracing cryptocurrencies and aiding their adoption.